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CA Final – Nov 2019(Old & New Syllabus)

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Series 1 (November 2019)

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DT – Booster Series 1 (November 2019)

Days Particulars Page No.

1 Basic Chapters 1

2 TDS & TCS 6

3 Assessment of Various Entities 9

4 Assessment of Charitable Trust 15

5 Assessment Procedure 19

6 Interest, Penalties & Miscellaneous 24

7 International Taxation 26

Index

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CA Dhaval Patanvadia www.theinvictus.in +91-87800 58699

1

01 Basic Chapters

Question 1

Petal Limited, engaged in the business of manufacturing of mobile accessories also effected the sales and

purchase of shares of other companies. It suffered loss from such transactions:

(1) Whether such company can set off its losses from share trading from the profit of manufacturing

business?

(2) If principal business of such company is sale and purchase of shares of other company, then, what

would be your answer? (4 Marks)

Question 2

Mr. Ajay gifted a sum of Rs. 8 lakhs to his brother's wife on 18-9-2017. On 22-10-2018, his brother gifted a

sum of Rs. 7 lakhs to Mr. Ajay's wife. The gifted amounts were invested as fixed deposits in banks by Mrs.

Ajay and wife of Mr. Ajay's brother on 01-11-2018 at 11% interest.

Discuss the consequences of the above under the provisions of the Income-tax Act, 1961 in the hands of Mr.

Ajay and his brother. (4 Marks)

Question 3

Mr. Sarthak was a partner in a firm, representing his HUF, holding 30% of the share in the firm. His wife

Sneha, a house lady, was admitted in her individual capacity in the firm for 30% share. She was paid

remuneration which has been proposed by the Assessing Officer to be clubbed in the hands of Sarthak-HUF

by invoking section 64 of the Act. Examine the validity of the Assessing Officer’s action. (4 Marks)

Question 4

FIT India & Co. a partnership firm, was dissolved and as per dissolution deed of the partnership firm, with

effect from 17th August, 2018. Sanjay, one of the partners of erstwhile firm took over the entire business of

the partnership firm in his individual capacity including fixed assets, current assets and liabilities and the

other partners was paid his dues. He then continued the business as a sole proprietor with effect from that

date. The assessee, relying on section 78(2), claimed the set-off of the losses suffered by the erstwhile

partnership firm against his income earned as an individual proprietor, considering the case as a

inheritance of business. The claim of the assesse was disallowed by the Assessing Officer.

Examine the correctness of the action of the Assessing Officer. (4 Marks)

Question 5

Mr. Gupta holding 25% voting power in SPO Manufacturing Private Limited permitted his own land to be

mortgaged to a bank for enabling the company to obtain a loan. Mr. Gupta requested the company to

release the property from the mortgage. The company failed to do so, but for retaining the benefit of bank

loan it gave an advance of Rs. 10 lakhs to Mr. Gupta, which was authorized by a resolution passed by the

Board of Directors. The company's accumulated profit on the date of payment of advance was Rs. 50 lakhs.

The Assessing Officer proposes to tax the amount of Rs. 10 lakhs by invoking the provision of section

2(22)(e).

Is the proposition of the Assessing Officer correct in law? (4 Marks)

Question 6

X. Ltd. issued debentures in the previous year 2018-19, which were to be matured at the end of 5 years.

The debenture holder was given an option of one time upfront payment of Rs. 60 per debenture on account

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of interest which was to be immediately paid by the company. As per the option exercised by the debenture

holders, company paid interest upfront to them in the first year itself and the same was claimed as

deduction in the return of the company. But in the accounts, the interest expenditure was shown as

deferred expenditure to be written off over a period of 5 years. During the course of assessment, the

Assessing Officer spread the upfront interest paid over a period of five year term of debentures and

allowed only one-fifth of the amount in the previous year 2018-19. Examine the correctness of the action of Assessing Officer. (4 Marks)

Question 7

Neha was carrying on the textile business under a proprietorship concern, Neha Textiles. On 21.07.2018

the business of Neha Textiles was succeeded by New Look Textile Private Limited and all the assets and

liabilities of Neha Textiles on that date became the assets and liabilities of New Look Textile Private

Limited and Neha was given 52% share in the share capital of the company. No other consideration was

given to Neha on account of this succession.

The assets and liabilities of Neha Textiles transferred to the company included an urban land which was

acquired by Neha on 19.7.2012 for Rs. 9,80,000. The company sold the same on 30.03.2019 for Rs.

15,00,000.

Examine the tax implication of the above-mentioned transaction and compute the income chargeable to tax

in such case(s).

Cost Inflation Index: 2012-13: 200; 2018-19: 280 (6 Marks)

Question 8

Mr. Rajiv is a retail trader and his total income for the last few years ranged between ₹ 8 lakh to ₹ 10 lakh.

He celebrated his 25th wedding anniversary on a large scale on 2nd December, 2018 by hosting a cruise

party in the luxury cruise liner “Ocean Princess”, for which he had spent ₹ 30 lakh. The Assessing Officer, in

the course of scrutiny assessment of Mr. Rajiv, asked him to explain the source of such expenditure. The

explanation offered by Mr. Rajiv that the same was out of his savings for the last few years, was not found

satisfactory by the Assessing Officer, since a couple of years ago, he had spent to tune of ₹ 60 lakh on the

grand wedding celebrations of his daughter at Vijayaseshmahal in Chennai.

You are required to examine the tax consequences. (4 Marks)

Question 9

Examine, in the context of provisions of the Income-tax Act, 1961, the taxability or otherwise of the income/receipt in each of the following cases for the A.Y. 2019-20:

(i) Income of ₹ 75,000 derived by a nursery from the sale of seedlings grown without carrying out all the

basic operations on land.

(ii) Ms. Reema, born and brought up in the State of Sikkim, has a net profit of ₹ 4,28,000 from the business

located in Sikkim and interest of ₹ 32,000 on the securities issued by the Central Government.

(iii) Amount of ₹ 10 lakh transferred to the NPS Account of Mr. Sriram, an employee of Gamma Ltd., under

Atal Pension Yojana, from an approved superannuation fund.

(iv) Receipt by Smt. Vidya, widow of Mr. Sharma (who was an employee of M/s. Phi Ltd.), on 25.10.2017 of

₹ 7.40 lakhs, being amount standing to the credit of Mr. Sharma’s NPS Account, in respect of which

deduction has been allowed under section 80CCD to Mr. Sharma in the earlier previous years. Such amount

was received by her as a nominee on closure of the account.

(v) Amount of ₹ 1,20,000, being 10% of salary of Mr. Ganesh, contributed by his employer Alpha Ltd. to an

approved superannuation fund. (6 Marks)


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Question 10

Mr. Kumar held 18% equity shares in PQR (P) Ltd. He gifted all the shares held by him in PQR (P) Ltd., to

his wife Sowmya on 17.7.2018. The transfer was made without adequate consideration.

On 18.9.2018, Sowmya obtained a loan of ₹ 2 lakh from PQR (P) Ltd., when the company's accumulated

profit was ₹ 1,50,000.

Examine the tax implications of the above transactions. (4 Marks)

Question 11

Compute the long-term capital gains/loss on transfer of listed equity shares (STT paid both at the time of

acquisition and transfer of shares) for the A.Y.2019-20, in the four independent cases given below:

Company No. of Shares

Date of Acquisition

Cost of Acquisition

(Per Share)

Date of Transfer

Sale Price

(per share)

FMV as on 31-01-18

Ganesh A Ltd. 1,000 28-12-16 1,000 01-05-18 2,500 2,000

Rajesh B Ltd. 2,000 30-11-16 3,000 01-6-18 5,000 6,500

Sridhar C Ltd. 3,000 01-01-17 2,000 01-07-18 3,000 1,500

Vaibhav D Ltd. 4,000 15-01-17 4,000 01-08-18 2,500 6,000

(6 Marks)

Question 12

Mr. Dheeraj has commenced the business of manufacture of paper on 1.4.2018. He employed 180 new

employees during the P.Y.2018-19, the details of whom are as follows –

Sr. No. of

Employees Date of

Employment Regular /

Contractual Total Monthly Emoluments

per Employee

1 51 01-4-18 Regular 23,000

2 46 01-06-18 Regular 26,000

3 48 01-08-18 Contractual 27,000

4 35 01-10-18 Regular 24,000

The regular employees participate in recognized provident fund while the contractual employees do not.

The emoluments are paid by use of ECS through a bank account.

a) Compute the deduction, if any, available to Mr. Dheeraj for A.Y.2019-20, if the profits and gains

derived from manufacture of paper that year is ₹ 74 lakh and his total turnover is ₹ 2.56 crore.

b) Would your answer change if Mr. Dheeraj has commenced the business of manufacturing of leather

products (and not paper) on 1.4.2018 and the above particulars related to such business? (8

Marks)

Question 13

PQR Ltd. is a company in which the whole of its share capital was held by LMN Ltd. Both PQR Ltd. and LMN

Ltd. are Indian companies. PQR Ltd. had made investment in shares of Berkley Ltd. in 1992 for ₹ 7,00,000

which it sold to LMN Ltd. on April 1, 2010 for a consideration of ₹ 42,00,000.

The fair market value of these shares of Berkley Ltd., as on April 1, 2001 is ₹ 32,00,000. LMN Ltd.

disinvested 7% of the shares held by it in PQR Ltd., in November 2018 by sale to public. It sold the shares in

Berkley Ltd. acquired by it from PQR Ltd. in February, 2019 for a sum of ₹ 95,00,000.

Examine the capital gains tax effect of these transactions in the hands of PQR Ltd. and LMN Ltd. in the

relevant assessment years, presuming that the shares of Berkley Ltd. are unlisted shares.


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The cost inflation index for the F.Y.2010-11 is 167 and F.Y.2018-19 is 280 (6 Marks)

Question 14

Ms. Janani reports to you that her gross receipt from interior decoration profession carried on by her

during the year ended 31-03-2019 is ₹ 47,80,000. Her net income as per income and expenditure account

is ₹ 25,00,000 before adjustment of depreciation of ₹ 1,50,000. She did not pay any amount by way of

advance tax during the financial year 2018-19. She has two residential house properties, of which one is

self-occupied for residence and another is let out for the monthly rent of ₹ 15,000 during the financial year

2018-19.

Is Janani eligible to opt for presumptive tax provisions, if any, under the Income-tax Act, 1961? If so, is it

beneficial for her to opt for such provisions? Advise, assuming that she approached you for consulting on

this matter in April, 2019 (8 Marks)

Question 15

PQR Ltd. is engaged in the manufacture of multi-layer tubes and other speciality packaging and plastic

products. It came out with an initial public issue of shares during the year 2017-18 and deposited the share

application money received in banks till the allotment of shares was completed. The company earned

interest of ₹ 75 lakhs on such deposits, which it set off against the public issue expenses, while computing

total income for A.Y.2018-19. Accordingly, the company paid the tax on total income, after adjusting tax

deducted at source and advance tax paid, and filed its return of income in September, 2018. On scrutiny,

the Assessing Officer contended that interest of ₹ 75 lakhs is not eligible for set-off against public issue

expenses but is taxable under the head ‘Income from Other Sources’. Examine the correctness of contention

of the Assessing Officer. (4 Marks)

Question 16

Sigma Ltd., incorporated on 1.4.2017, is a technology enabled eligible start-up engaged in innovation of

processes. The company filed its return of income for A.Y.2019-20 after claiming deduction of ₹ 18 lakhs

under section 80-IAC. The return was selected for scrutiny. In the assessment, a sum of ₹ 7 lakhs, being

30% of ₹ 21 lakhs, towards payment of fees for professional services was disallowed for non-deduction of

tax at source by invoking section 40(a)(ia).

The Assessing Officer, however, limited the deduction under section 80-IAC to the original amount claimed

by Sigma Ltd. Sigma Ltd. contended that it was eligible for a higher deduction of ₹ 25 lakhs under section

80-IAC consequent to disallowance under section 40(a)(ia).

Examine the correctness of contention of Sigma Ltd. (4 Marks)

Question 17

On 1.4.2018, Wuyu Ltd. was amalgamated with Rayu Ltd. satisfying all the conditions mentioned in section

2(1B).

Wuyu Ltd. had the following brought forward losses as assessed till the assessment year 2018-19:

Particulars ₹ in lakhs

Speculation business loss 5

Unabsorbed Depreciation 13

Business loss 150

Unabsorbed expenditure of capital nature on scientific research 3

Rayu Ltd. has computed a profit of ₹ 180 lakhs for the financial year 2018-19 before setting·off the eligible

losses of Wuyu Ltd. but after providing depreciation @ 15% p.a. on ₹ 140 lakhs, being the consideration at

which plant and machinery were transferred by Wuyu Ltd. to Rayu Ltd. The WDV as per Income-tax

records of Wuyu Ltd. as on 1.4.2018 was ₹ 98 lakhs.


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The above profit of Rayu Ltd. includes speculation business profit of ₹ 15 lakhs.

Compute the total income of Rayu Ltd. for the A.Y. 2019-20 and indicate the losses/other allowances to be

carried forward by it. Assume the amalgamation is within the meaning of section 72A of the Income-tax

Act,1961. Give reasons for treatment of each item. (8 Marks)

Question 18

M/s Jonga and Jonga decided to expand its jeep product line and entered into an agreement with K Inc., an

American company, which agreed to sell it dies, welding equipment and die models. The purchase

consideration was agreed at $ 65000 including cost, insurance and freight and K Inc., agreed to advance a

loan to the assessee at 6% interest per annum repayable after 10 years in instalments. The Reserve Bank of

India and the concerned Ministry approved the loan agreement.

Later on, XL Inc., took over K Inc., and agreed to waive the principal amount of loan advanced by K Inc., to

Jonga and Jonga and to cancel the promissory notes as and when they matured. This was communicated to

the assessee-company which filed its return showing ₹ 35 Lakh as cessation of liability in its books of

account.

The Income-tax Officer concluded that the waiver of the loan amount represented income and held that the

sum of ₹ 35 Lakh is taxable under section 28(iv) as income. The alternate argument of the Revenue

authorities was that the sum would be taxable under section 41(1) as a waiver of a trading liability.

Examine the validity of Assessing Officer's action. (4 Marks)


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02 Tax Deduction & Collection at Source [TDS & TCS]

Question 1

Fine Airways Ltd. sold tickets to the travel agents in India at a minimum fixed commercial price. The agents

were permitted to sell the tickets at a higher price but not exceeding the maximum published price.

Commission at the rate of 10% of minimum fixed commercial price was deducted under section 194H by

the company. The Assessing Officer contended that the liability for tax deduction at source is attracted on

the difference between the minimum fixed commercial price and the maximum published price by treating

it as "additional special commission" in the hands of the agents. Is the contention of Assessing Officer

tenable in law? (4 Marks)

Question 2

Examine the applicability of the provisions relating to deduction of tax at source in the following

transactions:

I. Mr. Shivam, a resident, is due to receive Rs. 4.50 lakhs on 31.3.2019, towards maturity proceeds of LIC

policy taken on 1.4.2015, for which the sum assured is Rs. 4 lakhs and the annual premium is Rs.

1,25,000.

II. On 1.6.2018, Mr. Sahil made three nine month fixed deposits of Rs. 1 lakh each carrying interest@9%

with Shatabadi Puram Branch, Adarsh Nagar Branch and Gayatri Vihar Branch of PQR Bank, a bank

which has adopted CBS. The fixed deposits mature on 28.2.2019. (4 Marks)

Question 3

Discuss the following issues in the context of the provisions of the Income-tax Act, 1961, with specific

reference to clarification given by the Central Board of Direct Taxes -

a) Star TV, a television channel, made payment of Rs. 50 lakhs to a production house for production of

programme for telecasting as per the specifications given by the channel. The copyright of the

programme is also transferred to Star TV. Would such payment be liable for tax deduction at source

under section 194C? Discuss.

Also, examine whether the provisions of tax deduction at source under section 194C would be

attracted if the payment was made by Star TV for acquisition of telecasting rights of the content

already produced by the production house

b) Shipra Ltd., an advertising company, has retained a sum of Rs. 15 lakhs, towards charges for

procuring and canvassing advertisements, from payment of Rs. 1 crore due to Sky TV, a television

channel, and remitted the balance amount of Rs. 85 lakhs to the television channel. Would the

provisions of tax deduction at source under section 194H be attracted on the sum of Rs. 15 lakhs

retained by the advertising company? (8 Marks)

Question 4

M/s Cool Sip Limited entered into an agreement for the warehousing of its products with Topstore

Warehousing and deducted tax at source as per provisions of section 194C out of warehousing charges

paid during the year ended on 31.03.2019. The Assessing Officer, while completing the assessment for A.Y.

2018-19 of Cool Sip Limited in March 2019, treated the warehousing charges as rent as defined in section

194-I and asked the company to make payment of difference amount of TDS with interest. It was submitted

by the company that the recipient had already paid tax on the entire amount of warehousing charges and

therefore, now the difference amount of TDS cannot be recovered. However, it will make the payment of


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due interest on the difference amount of TDS. Examine critically in the context of provisions contained in

Income-tax Act, 1961 as to the correctness of the submission of M/s. Cool Sip Ltd.

Question 5

Auto Ltd., a manufacturer of automobiles, sells premium cars (each of value between ₹ 12 lakh to ₹ 25 lakh)

and small cars (each of value between ₹ 5 lakh to ₹ 9 lakh) to its dealers across the country. Discuss whether the manufacturers are liable to collect tax at source under section 206C.

Also, discuss the liability, if any, of dealers to collect tax at source on sale of these cars to the retail

customers, if no part of the consideration is received in cash? Would your answer change, if part of the

consideration is received in cash? (4 Marks)

Question 6

Examine the liability for tax deduction at source in the following cases for the assessment year 2019-20:

1) An Indian company pays gross salary including allowances and monetary perquisites amounting to

Rs.9,20,000 to its General Manager. Besides, the company provides non-monetary perquisites to

him whose value is estimated at Rs.1,40,000.

2) Mr. Aryan, a resident, acquired a house property at Chennai from Mr. Josh for a consideration of

Rs.85 lakhs, on 21.7.2018. On the same day, Mr. Aryan made two separate transactions, thereby

acquiring an urban plot in Mumbai from Mr. Akash for a sum of Rs.49,00,000 and rural agricultural

land from Mr. Dhanush for a consideration of Rs.55 lakhs.

3) A notified infrastructure debt fund eligible for exemption under section 10(47) of the Income-tax

Act, 1961 pays interest of Rs.6 lakhs to a company incorporated in Canada. The Canadian Company

incurred expenditure of Rs.15,000 for earning such interest. The fund also pays interest of Rs.2.5

lakhs to Mr. A, who is a resident of a notified jurisdictional area.

4) Fly Ltd. has paid amount of Rs.18 lacs during the year ended 31-3-2019 to Airports Authority of

India towards landing and parking charges. (8 Marks)

Question 7

Deer Co Ltd engaged in the business of manufacture of furniture items on contract basis. It sub-contracted

the production of cushion for the chairs to M/s Lion & Co, a sole proprietary concern. The sub-contractor

M/s. Lion & Co procured the raw materials for production of cushions, performed further labour works and

supplied the same to Deer Co Ltd. It raised its bill on Deer Co Ltd, showing the cost of raw materials ₹

4,00,000 and labour charges ₹ 1,50,000, separately. Explain briefly the tax deduction requirement in the

hands of Deer Co Ltd. (2 Marks)

Question 8

M/s PMPC, a partnership firm, is engaged in the manufacture of cardboard carton boxes used in packaging

industry. During the year, it has sold cutting waste generated amounting to ₹ 30 lakhs to M/s PAPC Ltd, a

paper manufacturing company. It uses such cutting waste purchased as raw material for its production.

Discuss the implication of this transaction with respect to tax collected at source. (2 Marks)

Question 9

Examine in the context of provisions contained in Chapter XVII of the Act and also work out the amount of

tax to be deducted by the payer of income in the following cases:

1) "Profit Commission" of Rs.1 lac paid on 18.7.2018 by a re-insurance company to the insurer

company after the expiry of the term of insurance and where there was no claim during the treaty.


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2) Amit, a part time director of ABC Pvt. Ltd. was paid an amount of Rs.3,10,000 as fees which was

actually in the nature of commission on sales for the period 1.4.2018 to 30.6.2018. (4 Marks)


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03 Assessment of Various Entities

Question 1

The Invictus Ltd., a domestic company, provides the following information of its Statement of Profit and

Loss for the year ended on 31/03/2019. It earned profit of Rs. 15 lakhs after debiting/crediting of the

below items:

Items debited to Statement of Profit and Loss:

No. Particulars Amount

1 Provision for the loss of subsidiary 70,000

2 Provision for doubtful debts 75,000

3 Provision for income-tax 1,05,000

4 Provision for gratuity based on actuarial valuation 2,00,000

5 Depreciation 3,60,000

6 Interest to financial institution (unpaid before filing of return) 1,00,000

7 Penalty for infraction of law 50,000

Items credited to Statement of Profit and Loss:


1 Profit from unit established in special economic zone 5,00,000

2 Share in income of an AOP as a member 1,00,000

3 Income from units of UTI 75,000

4 Long term capital gains on sale of a plot 3,00,000

Other Information:

(a) Provision for income-tax includes Rs. 45,000 of interest payable on income-tax.

(b) The capital gain has been invested in specified assets under section 54EC.

(c) Depreciation includes Rs. 1,50,000 on account of revaluation of fixed assets.

(d) Depreciation as per Income-tax Rules is Rs. 2,80,000.

(e) Brought forward loss of Rs. 10 lakhs include unabsorbed depreciation of Rs. 4 lakhs.

(f) The AOP, of which the company is a member, has paid tax at maximum marginal rate.

Compute minimum alternate tax under section 115JB of the Income-tax Act, 1961, for A.Y. 2019-20,

assuming that The Invictus Ltd. is not required to comply with the Indian Accounting Standards. (14

Marks)

Question 2

Compute the total income and tax liability of M/s. LMN, a firm, consisting of three partners namely, Lalit,

Mohit and Gagan for the assessment year 2019-20 from the following information. Lalit, Mohit and Gagan

were partners in their individual capacity.

(i) The firm carried on the business of purchase and sale of refrigerators in wholesale and

manufacture and sale of footballs under a deed of partnership executed on 1.4.2011. The deed of

partnership provided for payment of salary amounting to Rs. 1,25,000 each to Lalit and Gagan, who

were the working partners.


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(ii) A new deed of partnership was executed on 1.10.2018 which, apart from providing for payment of

salary to the two working partners as mentioned in the deed of partnership executed on 1.4.2011,

for the first time provided for payment of simple interest @ 12% per annum on the balances

standing to the credit of the Capital accounts of partners from 1.4.2018.

(iii) The firm was dissolved on 31.3.2019 and the capital assets of the firm were distributed among the

partners on 20.4.2019.

(iv) The net profit of the firm for the year ended 31.3.2019 after payment of salary to the working

partners and debit/credit of the following items to the Profit and Loss Account was Rs. 1,50,000:

Interest amounting to Rs. 1,00,000 paid to the partners on the balances standing to the credit

of their capital accounts from 1.4.2018 to 31.3.2019.

Interest amounting to Rs. 50,000 paid to the partners on the balances standing to the credit of

their Current accounts from 1.4.2018 to 31.3.2019

Interest amounting to Rs. 20,000 paid to the Hindu undivided family of partner Lalit @ 18%

per annum.

Depreciation amounting to Rs. 15,000 on motor car bought and used exclusively for business

purposes, but registered in the name of partner ‘Lalit’.

Depreciation under section 32(1)(ii) amounting to Rs. 37,500 on new machinery bought and

installed for manufacture of footballs on 1.11.2018 at a cost of Rs. 5,00,000. Payment was

made by an A/c Payee Cheque.

Interest amounting to Rs. 25,000 received from bank on fixed deposits made out of surplus funds.

Payment of Rs. 25,000 towards purchase of refrigerators (stock in trade) made by crossed

cheque on 1.11.2018.

Rs. 30,000 being the value of gold jewellery received as gift from a manufacturer for

achieving sales target.

(v) Other information:

a) Closing stock-in-trade was valued at Rs. 60,000 as per the method of lower of cost or net

realizable value consistently followed by it. The net realizable value of the closing stock-in-

trade was Rs. 65,000.

b) Brought forward business loss relating to the assessment year 2018-19 was Rs. 50,000.

c) The fair market value of the capital assets as on 31.3.2019 was Rs. 20,00,000 and the cost of

their acquisition was Rs. 15,00,000.

You are required to furnish the explanations for the treatment of the above items. (16 Marks)

Question 3

Sai LLP, a limited liability partnership set up a unit in Special Economic Zone (SEZ) in the financial year

2014-15 for production of washing machines. The unit fulfills all the conditions of section 10AA of the

Income-tax Act, 1961.

During the financial year 2017-18, it has also set up a warehousing facility in a district of Tamil Nadu for

storage of agricultural produce. It fulfills all the conditions of section 35AD. Capital expenditure in respect

of warehouse amounted to Rs. 75 lakhs (including cost of land Rs. 10 lakhs). The warehouse became

operational with effect from 1st April, 2018 and the expenditure of Rs. 75 lakhs was capitalized in the

books on that date.

Relevant details for the financial year 2018-19 are as follows:



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1 Profit of unit located in SEZ 40,00,000

2 Export sales of above unit 80,00,000

3 Domestic sales of above unit 20,00,000

4 Profit from operation of warehousing facility (before considering deduction under Section 35AD).

1,05,00,000

Compute income tax (including AMT under Section 115JC) payable by Sai LLP for Assessment Year 2019-

20. (10 Marks)

Question 4

Avantika Hospitality Limited is engaged in the business of running hotels of 3-star category. The company's

Statement of Profit and Loss for the previous year ended 31st March, 2019 shows a profit of Rs. 152 lakhs

after debiting or crediting the following items:

1) Payment of Rs. 0.25 lakh and Rs. 0.30 lakh in cash on 3rd December, 2018 and 10th December,

2018 respectively for purchase of crab, lobster and squid to Mr. Suraj, a fisherman, and Mr. Uday, a

middleman for these products, respectively.

2) Contribution towards employees' pension scheme notified by the Central Government under

section 80CCD for a sum of Rs. 3 lakhs calculated at 12% of basic salary and Dearness Allowance

payable to the employees.

3) Payment of Rs. 6.50 lakhs towards transportation of various materials procured by one of its hotels

to M/s. Bansal Transport, a partnership firm, without deduction of tax at source. The firm opts for

presumptive taxation under section 44AE and has furnished a declaration to this effect. It also

furnished its Permanent Account Number in the tender document.

4) Profit of Rs. 12 lakhs on sale of a plot of land to X Limited, a domestic company, the entire shares of

which are held by the assessee company. The plot was acquired by Avantika Hospitality Limited on

1st June, 2017.

5) Contribution of Rs. 2.50 lakhs to Indian Institute of Technology with a specific direction for use of

the amount for scientific research programme approved by the prescribed authority.

6) Expense of Rs. 10 lakhs on foreign travel of two directors for a collaboration agreement with a

foreign company for a brewery project to be set up. The negotiation did not succeed and the project

was abandoned.

7) Fees of Rs. 1 lakh paid to independent directors for attending Board meeting without deduction of

tax at source under section 194J.

8) Depreciation charged Rs. 10 lakhs.

9) Rs. 10 lakhs, being the additional compensation received from the State Government pursuant to an

interim order of Court in respect of land acquired by the State Government in the previous year

2014-15.

10) Dividend received from a foreign company Rs. 5 lakhs.

11) Donation paid to a political party of Rs. 25 lakhs by way of cheque.

Additional information:

1) As a corporate debt restructuring, the bank has converted unpaid interest of Rs. 10 lakhs upto 31st

March, 2017 into a new loan account repayable in five equal annual installments. The first

installment of Rs. 2 lakhs was paid in March, 2018 by debiting new loan account.

2) Depreciation as per Income-tax Act, 1961 Rs. 15 lakhs.

3) The company received a bill for Rs. 2 lakhs on 31st March 2018 from a supplier of vegetables for supply made in March, 2018. The bill was omitted to be recorded in the books in March, 2018. The


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bill was paid in April, 2018 by an A/c payee cheque and the necessary entry was made in the books

then. (16 Marks)

Question 5

Godavari Ltd., an Indian Company engaged in manufacture and sale of electrical appliances in India and

abroad, started adoption of Ind AS with effect from 1st April, 2017. The following particulars are furnished for the year ended 31st March, 2019:-

a) The book profit after adjustment of all items specified in section 115JB(2) amounted to ₹ 87.34 lakhs

(except the adjustment for brought forward losses/ unabsorbed depreciation), for the year ended

31.3.2019.

b) Brought forward losses as per books are as under : (₹ In lakhs)

F.Y. Business Loss Depreciation

2016-17 8.20 7.60

2017-18 7.30 9.50

c) The particulars of “Other Comprehensive Income” for the year ended 31.03.2019 (₹ in Lakhs)

Other Comprehensive Income (OCI) that will not be re-classified to profit and loss:

Debit Credit

1 Deferred Cost of Hedging 3.80

2 Changes in Fair Values of equity instruments 8.00

3 Revaluation of surplus for fixed assets 8.20

4 Deferred gain on Cash Flow hedges 6.70

5 Re-measurements of post-employment benefit obligations

5.20

6 Share of other comprehensive income of other associates

2.80

Other Comprehensive Income (OCI) that may be re-classified to profit and loss:

Debit Credit

1 Deferred gain on cash flow hedges 8.20

2 Comprehensive income from discontinued operations

5.30

3 Exchange differences of Foreign exchange operations

1.80

4 Deferred cost of hedging 0.80

d) The transition amount as on convergence date (01-04-2017) stood at ₹ 48 lakhs (credit balance) including capital reserve of ₹ 6 lakhs and adjustment of ₹ 5 lakhs relating to translation difference in a

foreign operation

e) The National Company Law Tribunal (NCLT), Mumbai Bench has admitted an application under

section 7 of Insolvency and Bankruptcy Code, 2016 (IBC) made by financial creditor against the

company for initiation of Corporate Insolvency Resolution Process on 30th March, 2019.

You are required to compute the MAT liability for the assessment year 2019-20, applying the provisions

relating to Ind AS compliant companies. Assuming that the income tax under normal provisions of Income-

tax Act, 1961 for the assessment year 2019-20 works out to ₹ 13.20 lakhs, compute the tax credit, if any, to

be carried forward by the company including the period up to which it will be available to be carried

forward. (16 Marks)


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Question 6

Alpha and Beta Tyres Limited, an Indian Company engaged in the manufacture of Tyres in Andhra Pradesh,

has adopted IndAS from 1-4-2016. The following particulars are provided for the year ended 31.3.2019

Net profit as per statement of profit and loss is ₹ 20 crores after debit and credit of the following items:

Items Debited:

a) Depreciation ₹ 18 crores. Included in depreciation is ₹ 3 crores, being amount provided on revalued

assets.

b) Interest charged for delay in remittance of tax deducted at source ₹ 20 lakhs.

Items Credited:

a) Share Income from Association of Persons in which the company is a member ₹ 50 lakhs. (The AOP is

charged to tax at Maximum Marginal Rate)

b) Amount of ₹ 6 crores withdrawn from revaluation reserves on account of revaluation of assets.

Other Information:

1) The application of a financial creditor for corporate insolvency resolution process has been

admitted by the Hyderabad Bench of the National Company Law Tribunal under section 7 of the

Insolvency and Bankruptcy Code, 2016.

2) Brought forward business loss and depreciation.

3) Items credited to other comprehensive income which will not be reclassified to profit or loss:

(i) Re-measurement of defined employee retirement benefits plan ₹ 50 lakhs.

(ii) Revaluation surplus of property, plant and equipment ₹ 1 crore.

4) The transition amount as on convergence date 1-4-2016 stood at ` 5 crores including capital

reserve of ₹ 50 lakhs (credit balance).

5) Tax payable under the regular provisions of the Income-tax Act, 1961 is ₹ 0.73 crores.

Compute Minimum Alternate Tax payable by the company for the Assessment Year 2019-20.

Compute the amount of MAT credit eligible for carried forward. (8 Marks)

Question 7

On, 1.4.2018, Binu Ltd. of Delhi, a domestic company, engaged in the business of manufacturing of metro

rail seats, converted into an LLP by name M/s. Soumya LLP fulfilling all the conditions specified in section 47(xiiib) of the Income-tax Act, 1961.

Some of the relevant information is given below in respect of Binu Ltd., as on 31.3.2018:

a) Voluntary Retirement Scheme (VRS) expenditure incurred by the company during the PY 2016-17

is ₹ 20 lakhs. The company was allowed deduction of ₹ 4 lakhs each for the PYs 2016-17 & 2017-18

under section 35DDA.

b) 150 equity shares in Toyo Ltd., an Indian company listed in Bombay Stock Exchange was acquired

for ₹ 1,900 per share on 31.7.2016. On conversion, these share become the property of M/s.

Soumya LLP.

c) Besides other assets transferred to M/s. Soumya LLP by M/s. Binu Ltd., it also transferred two

factory buildings. On 1.4.2018, M/s. Soumya LLP leased out one factory building along with plant

and machineries and furniture etc. at a consolidated lease rent of ₹ 50,000 per month.


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During the previous year 2018-19, the M/s. Soumya LLP earned a profit of ₹ 25,40,000 after debit/credit of

the following items to its Profit and loss account:

1) Mr. Binu is the working partner of the LLP. He is also a working partner in another firm. He is

actively engaged in the business of both the firms. Binu gets, a salary of ₹ 55,000 p.m. from M/s.

Soumya LLP and the same is authorised in the deed of LLP.

2) Mr. Ayushman, an employee, was deputed to work in the client's office in Mumbai for three months.

The LLP has paid his salary in cash for the months when he was in Mumbai, amounting to ₹

3,45,000 (net of TDS and other deductions), since he did not have a bank· account in Mumbai. This

payment was included in amount of "salary" debited to profit and loss account. Mr. Ayushman is

normally posted in Delhi being the headquarter of M/s. Soumya LLP

3) Amount of ₹ 25,000 was paid towards penalty for non-fulfilment of delivery conditions of a

contract for sale for the reasons beyond its control.

4) The LLP had provided an amount of ₹ 18 lakhs being the sum estimated as payable to workers

based on agreement to be entered with workers union towards periodical wage revision once in 3

years. The provision, is based on a fair estimation of wage and reasonable certainty of revision once

in 3 years.

5) Depreciation debited to profit and loss account ₹ 5,40,000.

6) Gratuity provisions based on actuarial valuations ₹ 6.5 lakhs. (Gratuity actually paid ₹ 4 lakhs to

retired employees debited in Gratuity provision account).

7) Profit on sale of shares of M/s. Toyo Ltd. ₹ 1,27,500. These shares were sold on 31.5.2018 for ₹

2,750 per share. The highest price of Toyo Ltd. quoted on the stock exchange as on 31.1.2018 was ₹

2,500 per share.

8) Repairs to plant and machinery include ₹ 59,000 in respect of plant and machinery given on lease.

9) Factory licence fee paid ₹ 15,000 for each factory building.

10) Legal fee includes ₹ 26,000 paid to an advocate for drafting and registering the lease agreement.

Additional Information:

1) Under an agreement of debt restructuring, the bank has converted unpaid interest amounting to `

9,00,000 up to 31.7.2018 into a new loan account repayable in 3 equal annual instalments. The first

instalment was paid in March 2019 by debiting the new loan account.

2) Mr. Binu, being a working partner, bought a car which is registered in his own name out of the

funds of LLP. The car was used exclusively for the purposes of the business of the LLP only. The

depreciation on the car amounts to ₹ 15,000 for the PY 2018-19 which is not included in the

depreciation amount debited to profit and loss account.

3) Depreciation as per Income-tax Rules ₹ 8,10,000 (including depreciation on the assets given on

lease amounting to ₹ 90,000). It does not include depreciation on car.

4) The LLP sold import entitlements on 1.5.2018 for ₹ 1,50,000. This sum is not included in profit and

loss account by treating it as capital receipt.

You are required to discuss the implication of such conversion and calculate the total income

in the hands of M/s Soumya LLP for the Assessment Year 2019-20. (14 Marks)

Question 8

The profit as per the statement of profit and loss of Harsha Ltd. for the year ended on 31.3.2019 is

Rs.14,25,000 arrived at after making the following adjustments:

Particulars Amount

1 Provision for loss of subsidiary 70,000


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2 Interest on deposit credited to buyers on 28.2.2019 for advance received from them, on which TDS was deducted in May 2019 and was deposited on 24.8.2019

1,00,000

3 Provision for income-tax 1,05,000

4 Expenses on purchase/sale of equity shares 15,000

5 Income from units of UTI 75,000

6 Depreciation 3,60,000

7 Long term capital gain on sale of equity shares on which securities transaction tax was paid at the time of acquisition and sale

3,60,000

The company provides the following additional information:

1) Depreciation includes Rs.1,50,000 on account of revaluation of fixed assets.

2) Depreciation allowable as per Income-tax Rules is Rs.2,80,000.

3) Brought forward loss or unabsorbed depreciation:

FY Amount as per Books Amount as per Income Tax

Loss (Including Depreciation)

Depreciation Loss (Including Depreciation)

Depreciation

2015-16 5,50,000 3,00,000 4,50,000 2,50,000

2016-17 2,70,000 2,70,000 2,80,000 1,80,000

2017-18 6,65,000 3,15,000 3,30,000 2,10,000

4) Revaluation surplus for assets of Rs.1,50,000 in accordance with the Ind AS 16 and Ind AS 38 to

credited to other comprehensive income.

You are required to:

a) Compute the total income of the company for the assessment year 2019-20 giving the reasons for

treatment of items and

b) Examine the applicability of section 115JB of the Income-tax Act, 1961, and compute book profit

and the tax credit to be carried forward.

Assume the tax rate applicable to Harsha Ltd for the P.Y. 2018-19 is 30%. (14 Marks)


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04 Assessment of Charitable Trust

Question 1

A charitable trust, whose income can be exempt under section 11 of the Income-tax Act, 1961, was formed

on 1st March, 2016. For the accounting year ended 31st March, 2019, it earned an income of ₹ 5,30,000.

It filed with the Commissioner of Income-tax its application for registration on 31st August, 2018

explaining that for good and sufficient reasons, it was prevented from filing the application for so long.

Examine by which date the application for registration should have been filed by the trust. Can the trust be

deemed to be registered, in case the order of registration is not passed by the Commissioner. (6 Marks)

Question 2

An institution having its main object as “advancement of general public utility” received Rs. 30 lakhs in

aggregate during the P.Y.2018-19 from an activity in the nature of trade. The total receipts of the

institution, including donations, was Rs. 140 lakhs. It applied 85% of its total receipts from such activity

during the same year for its main object i.e. advancement of general public utility.

(I) What would be the tax consequence of such receipt and application thereof by the institution?

(II) What would be your answer if the main object of the institution is “relief of the poor” and the

institution receives Rs. 30 lakhs from a trading activity, when its total receipts are Rs. 140 lakhs and applies

85% of the said receipts for its main object? (5 Marks)

Question 3

Examine the correctness or otherwise of the claims made by the following charitable trusts, registered

under section 12AA, while computing income for the P.Y.2018-19:

(a) Kamala charitable trust, having its main object as medical relief, earned the following income

during the P.Y.2018-19:

Dividend Income ₹ 50,000

Income from Mutual Fund specified u/s 10(23D) ₹ 85,000

Agricultural Income ₹ 3,25,000

The trust claims exemption under section 10(1), 10(34) and 10(35) in respect of its agricultural

income, dividend and income from mutual funds, respectively, without complying with the

conditions laid down under section 11.

(b) Gandhi charitable trust, having its main object as promoting education in rural areas, purchased

computers and laptops for ₹ 15 lakh in March, 2018 for the purposes of the trust and claimed the

same as application of income in the P.Y.2017-18. It also claims depreciation @ 40% on such

computers and laptops for P.Y.2018-19, while computing income for the purpose of application for

that year

Question 4

Edu All Charitable Trust registered under section 12AA, following cash system of accounting, furnishes you

the following information for P.Y. 2018-19:

(i) Gross receipts from hospital ₹ 200 lakhs

(ii) Gross receipts from medical college ₹ 95 lakhs (offering recognized degree courses).

(iii) Corpus donations by way of cheque ₹ 42 lakhs and by way of cash ₹ 6 lakhs.

(iv) Anonymous donations by cash ₹ 12 lakhs.

(v) Administrative expenses for hospital ₹ 75 lakhs.


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(vi) Fees not realized from patients ₹ 18,00,000 as on 31st March, 2019.

(vii) Depreciation on assets of the trust ₹ 37,50,000. The entire cost of assets ₹ 250 lakhs claimed as

application in the earlier years.

(viii) Acquired a building for ₹ 80 lakhs on 01.06.2018 for expansion of hospital (cost of land

included therein ₹ 50 lakhs). Stamp duty value of the land and building on the date of

registration of sale deed ₹ 210 lakhs.

(ix) The trust gave corpus donation of ₹ 19 lakhs to Help Aid Trust having objects of charitable

nature registered under section 12AA but not similar to the objects of the donor trust.

You are required to compute the total income of the trust and its income-tax liability in such a manner that

it can avail the optimal benefit within the four corners of the Income- Tax Act, 1961.

Note: The trust does not want to seek accumulation of income by virtue of section 11(2) of the Act

Question 5

Supporting the Girl Child, a charitable trust, is registered under section 12AA of the Act. On 1.4.2018, it got

merged with M/s. Ananya P Ltd., which is a company engaged in manufacturing of stationery items. All the

assets and liabilities of the erstwhile trust became the assets and liabilities of M/s. Ananya P Ltd who is not

entitled for registration under section 12AA of the Act. The trust appointed a registered valuer for the

valuation of its assets and liabilities. From the following particulars (including the valuation report),

Calculate the tax liability in the hands of the trust arising as a result of such merger:

1) Stamp duty value of land held ₹ 15 lakhs. However; if this land is sold in the open market, it would

ordinarily fetch ₹ 17 lakhs. The book value of the land is ₹ 20 lakhs.

2) 75,000 equity shares in Idom Ltd. traded in Bombay Stock Exchange. The lowest price per share on

1.4.2018 was ₹ 75 and the highest price on that day was ₹ 85. The book value was ₹ 67 lakhs.

3) 55,000 preference shares held in Niharika Ltd. The shares will fetch ₹ 44 lakhs, if They are sold in the

open market on 1.4.2018. Book value was ₹ 25 Lakhs.

4) Corpus fund as on 1.4.2018 ₹ 15 Lakhs.

5) Outside liabilities ₹ 90 lakhs

6) Provision for taxation ₹ 5 lakhs.

7) Liabilities in respect of payment of various utility bills f 6 lakhs.

Note: Give reasons for treatment of each item. (8 Marks)

Question 6

A public charitable trust registered under section 12AA furnished the following particulars for the previous

year ending 31.3.2019:

Particulars Rs. In Lakhs

a Income from properties held by trust 10

b Income from business (incidental to main objects) 4

c Voluntary contributions from public 7

d Anonymous Donations 10

e Excess of expenditure over income in the P.Y. 2017-18 1

The trust applied a sum of Rs.11.50 lacs towards charitable purposes during the year which includes Rs.4

lakhs, being the amount applied for the benefit of the founder of trust. The trust repaid the loan taken for

construction of orphanage of Rs.4 lacs.


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You are required to compute the total income of the trust in such a manner that it can avail the optimal

benefit within the four corners of the Income-tax Act, 1961 (5 Marks)


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05 Assessment Procedure

Question 1

Seizures were made from Mr. Arvind pursuant to a search conducted in his premises. He filed an

application for settlement by claiming to have received the amount by way of loans from several persons.

The Settlement Commission accepted his statement and made an order.

The CBI, however, conducted enquiry at the instance of the Revenue regarding the claimed amount of loans

and opined that the alleged lenders had no means or financial capacity to advance such huge loans to Mr.

Arvind and were mere name lenders only.

The Commissioner filed an application under section 245D(6) praying for the order to be declared void and

for withdrawal of benefit granted. Mr. Arvind, however, contended that the order of the Settlement

Commission was final and any fresh analysis would amount to sitting in judgement over an earlier decision,

for which the Settlement Commission was not empowered. Discuss the correctness of Mr. Arvind's

contention. (4 Marks)

Question 2

The regular assessment of Simran Ltd. for the Assessment Year 2017-18 was completed under section

143(3) on 13th March, 2019. There was an audit objection by the Revenue Audit team that interest on loan

should be disallowed partly as there was diversion of borrowed fund to sister concern without charge of

interest.

Examine whether the Assessing Officer can issue notice under section 148 on the basis of audit objection of

the Revenue Audit team.

Question 3

Cash of Rs. 51 lacs was seized on 12.9.2018 in a search conducted as per section 132 of the Act. The

assessee moved an application on 27.10.2018 to release such cash after explaining the sources thereof,

which was turned down by the department (not satisfied with the explanation given by the assessee). Can

the department withhold the explained money? Examine. (4 Marks)

Question 4

The assessment of Vijaya Ltd. was completed under section 143(3) with an addition of Rs. 28 lakhs to the

returned income. Vijaya Ltd. preferred appeal before the Commissioner (Appeals) which is pending now.

In this backdrop, examine the following issues:

(I) Can the Assessing Officer pass an order under section 154 for rectification of mistake in respect of

issues not being subject matter of appeal?

(II) Can the assessee-company seek revision under section 264 in respect of matters other than those

preferred in appeal?

(III) Can the Commissioner make a revision under section 263 both in respect of matters covered in appeal

and other matters? (6 Marks)

Question 5

“Proceedings cannot be initiated under the Act, unless a proper notice to this effect has been served upon.”

In this context answer:

(I) What are the prescribed modes of service of such notice?

(II) On whom should the notice be addressed and served upon in the cases where the assessee is a

- dissolved firm


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- partitioned HUF. (5 Marks)

Question 6

Shipra Ltd. filed its return of income for assessment year 2018-19 on 6th June, 2018. The return is

selected for regular assessment under section 143(3) for which notice under section 143(2) is

served on the company on 3rd October, 2019. The company responded to the notice under section

143(2). Examine whether the service of the notice is within time and if not, whether the assessment

order can be challenged by the assessee.

Question 7

The Director General of Income Tax after getting the information that Mr. Mahesh is in possession of

unaccounted cash of Rs. 50 lacs, issued orders by invoking powers vested in him as per section 131(1A), for

its seizure. Is the order for seizure of cash issued by the Director General of Income Tax correct? If not,

does the Director General of Income Tax have any other power to seize such cash? (4 Marks)

Question 8

The assessment of Mr. Sahaj for A.Y.2011-12 was made on 28.3.2013 making an addition of Rs. 3,25,000 for

a certain income received during the P.Y.2010-11. The assessee contested the addition before

Commissioner (Appeals) but lost the case. The Appellate Tribunal passed an order on 26.2.2018 holding

that the said income was not taxable in the P.Y.2010-11 but the same was taxable in the year of accrual,

being P.Y.2005-06 relevant to A.Y.2006-07. The Assessing Officer issued notice under section 148 for

A.Y.2006-07 in March 2018 bringing to tax the sum of Rs. 3,25,000. Is the notice valid? (3 Marks)

Question 9

A petition for stay of demand was filed before ITAT by XYZ Ltd. in respect of a disputed demand for which

appeal was pending before it, on which stay was granted by the ITAT vide order dated 1.1.2018. The bench

could not function thereafter till 1.2.2019 and therefore, the disputed matter could not be disposed off. The

Assessing Officer attached the bank account on 16.2.2019 and recovered the amount of Rs. 15 lacs against

the arrear demand of Rs. 25 lacs. The assessee requested the Assessing Officer to refund back the amount

as it holds stay over it. The Assessing Officer rejected the contention of the assessee. Now the assessee

seeks your opinion. (4 Marks)

Question 10

An Assessing Officer entered a hotel run by a person, in respect of whom he exercises jurisdiction, at 8.30

p.m. for the purpose of collecting information, which may be useful for the purposes of the Act. The hotel is

kept open for business every day between 8 a.m. and 10 p.m. The hotelier claims that the Assessing Officer

could not enter the hotel after sunset. The Assessing Officer wants to take away with him the books of

account kept at the hotel.

Examine the validity of the claim made by the hotelier and the proposed action of the Assessing Officer

with reference to the provisions of section 133B of the Income-tax Act, 1961. (4 Marks)

Question 11

In an order of assessment for the A.Y. 2017-18, the assessee noticed a mistake for which application under

section 154 was moved and the order was rectified. Subsequently, the assessee moved further application

for rectification under section 154 which was rejected by the Assessing Officer on the ground that the

order once rectified cannot be rectified again. Examine the correctness or otherwise of the contention of

the Assessing Officer (3 Marks)


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Question 12

The return for A.Y.2019-20 was filed on time as per section 139(1) and proceedings were taken up for

assessment under section 143(3). Later on, the assessee, noticed certain omissions and therefore filed a

revised return on 18.4.2020. The Assessing Officer ignoring the revised return so filed framed the order on

27.4.2020. Is the action of Assessing Officer correct? Examine. (3 Marks)

Question 13

The assessment of Vindhyas Ltd. was completed under section 143(3) with an addition of ` 21 lakhs to the

returned income. Vindhyas Ltd. preferred appeal before the Commissioner (Appeals) which is pending

now.

In this backdrop, examine the following issues:

(i) Based on fresh information that there was escapement of income for the same assessment year, can the

Assessing Officer initiate reassessment proceedings when the appeal is pending before Commissioner

(Appeals)?

(ii) Can the Assessing Officer pass an order under section 154 for rectification of mistake in respect of


(iii) Can the assessee-company seek revision under section 264 in respect of matters other than those


(iv) Can the Commissioner make a revision under section 263 both in respect of matters covered in appeal

and other matters? (8 Marks)

Question 14

Explain the circumstances under which the Assessing Officer can resort to provisional attachment of the

property of the assessee. Also, state the period of time for which such attachment can take place.

When can the Assessing Officer revoke provisional assessment of property? Discuss. (4 Marks)

Question 15

The assessment of Lambda Ltd. was completed under section 143(3) with an addition of ₹ 22 lakhs to the

returned income. The assessee-company preferred an appeal before the Commissioner (Appeals) which is

pending now.

In this backdrop, answer the following:

1) Based on fresh information that there was escapement of income for the same assessment year, can

the Assessing Officer initiate reassessment proceedings when the appeal is pending before

Commissioner (Appeals)?

2) Can the Assessing Officer pass an order under section 154 for rectification of mistake in respect of


3) Can the assessee-company seek revision under section 264 in respect of matters other than those


4) Can the Commissioner make a revision under section 263 both in respect of matters covered in

appeal and other matters?

Question 16

Examine the correctness or otherwise of the following statements with reference to the provisions of the

Income-tax Act, 1961:

1) The Commissioner (Appeals) cannot admit an appeal filed beyond 30 days from the date of receipt

of order by an assessee.


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2) The Appellate Tribunal is empowered to grant indefinite stay for the demand disputed in appeals

before it.

Question 17

Mr. Vallish had approached the Settlement Commission for waiver of interest under sections 234A to 234C

of the Income-tax Act, 1961. The Settlement Commission partially waived the interest but refused to grant interest on refund on the grounds that section 244A does not provide for payment of interest in such cases.

Further, the Settlement Commission contended that its power to waive interest does not enable it to

provide for payment of interest under section 244A. Discuss the correctness of the Settlement

Commission’s action in denying to grant interest on refund

Question 18

M/s. Uranus LLP filed its return of income for the A.Y. 2016-17 on 23-07-2016. The assessment u/s 143(3)

was completed on 27th April, 2017. The Assessing Officer made two additions to the income of the LLP,

namely, ₹ 12 lakhs towards unexplained investment u/s 69 and ₹ 4 lakhs u/s 40(b) due to excess interest

paid to partners.

The LLP, being aggrieved, contested the addition of ₹ 12 lakhs under section 69 and filed an appeal before

the Commissioner (Appeals). The appeal was decided on 12th February, 2019 against the LLP.

In March, 2019, the LLP approaches you to know whether it should apply for revision to Principal

Commissioner u/s 264 or for rectification u/s 154 to the Assessing Officer as regards disallowance u/s 40(b). You are required to advise the LLP, keeping in mind the relevant provisions of income-tax law.

Question 19

An Income-tax authority did not file an appeal to the Income-tax Appellate Tribunal against an order of the

Commissioner (Appeals) decided against the Income-tax department on a particular issue in case of one

assessee, Bela for assessment year 2018-19 on the ground that the tax effect of such dispute was less than

the monetary limit prescribed by CBDT. In assessment year 2019-20, similar issue arose in the assessments

of Bela and her sister Tara, which was decided by the Commissioner (Appeals) against the Department. Can

the Income-tax department move an appeal to the Tribunal in respect of A.Y. 2019-20 against the orders of

the Commissioner (Appeals) for Bela and her sister Tara? (4 Marks)

Question 20

For the Assessment Year 2018-19, Mr. John, was directed to carry out a special audit of his accounts under

section 142(2A) on 1.8.2018, without giving him an opportunity of being heard.

Answer the following questions in this regard:

1) Can the assessee contend that since reasonable opportunity of being heard is not provided to him

by the Assessing Officer, such notice requiring the special audit of accounts is not valid?

2) If the assessee decides to get his books of account audited under section 142(2A), what will be the

due date by which he has to submit the audit report (including the extended time, if any, allowed to

him)?

3) If the assessee intentionally does not comply with the directions. How much penalty can be levied

on him?

4) For failure to get the books of account audited 'under section 142(2A), can prosecution proceedings

be launched against the assessee? If yes, what will be the quantum of punishment for such default?

5) Can the assessee approach the Settlement Commission to grant immunity from penalty and

prosecution proceedings initiated against him? If yes, discuss the power of Settlement Commission

to grant immunity in this regard. (6 Marks)


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Question 21

(i) On 27th August, 2018, a search was conducted under section 132 in the business premises of Kabir. At

that time, reassessment proceeding under section 147 for A.Y. 2015-16 and assessments under section

143(3) for A.Y. 2016-17 and A.Y. 2017-18 were pending before the Assessing Officer.

1) What are the assessment years for which notice can be issued for making post-search assessment?

2) What would be the fate of pending assessments and reassessment? (4 Marks)

Question 22

Examine the correctness or otherwise of the following propositions in the context of the Income-tax Act,

1961:

a) At the time of hearing of rectification application, the Income-tax Appellate Tribunal can re-

appreciate the evidence produced during the proceedings of the appeal hearing.

b) The High Court cannot interfere with the factual finding recorded by the lower authorities and the

Tribunal, without any valid reasons. (4 Marks)


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Interest, Penalties & Prosecution, Other Miscellaneous

Question 1

Prime (P) Ltd., an Indian company established in the year 2011, reports total income of Rs. 15 lakh for the

previous year ended 31st March, 2019.

Tax deducted at source by different payers amounted to Rs. 1,35,600 and tax paid in foreign country on a

doubly taxed income amounted to Rs. 22,000 for which the company is entitled to relief under section 90

as per the double taxation avoidance agreement.

During the year, the company paid advance tax as under.

13-06-2018 38,000

15-09-2018 75,000

12-12-2018 92,000

14-03-2018 75,000

The company filed its return of income for the A.Y. 2019-20 on 22nd October, 2019.

Compute interest, if any, payable by the company under sections 234A, 234B and 234C and fee payable

under section 234F. Assume that transfer pricing provisions are not applicable (4 Marks)

Question 2

X, an individual whose total sales in the business of food grains for the year ending 31.3.2019 was Rs. 205

lakhs, did not maintain books of account for P.Y.2018-19, even though his turnover exceeded Rs.25 lakhs in

the P.Y.2017-18. The Assessing Officer levied penalty of Rs. 25,000 under section 271A for non-

maintenance of books of account and penalty of Rs. 1,02,500 under section 271B for not getting the books

audited as required by section 44AB. Is the Assessing Officer justified in levying penalty under section

271B? (4 Marks)

Question 3

M/s. Pluto LLP filed its return of income for A.Y.2019-20, declaring total income of ₹ 25 lakhs, on 2nd

October, 2019. On processing of return, the total income determined under section 143(1)(a) was ₹ 30

lakhs, after disallowing claim for deduction under section 10AA on account of late furnishing of return of

income. Thereafter, on scrutiny, the Assessing Officer made some additions under section 40(a)(ia) and

section 43B and passed an assessment order under section 143(3) assessing total income of ₹ 40 lakhs.

Later on, the Assessing Officer noticed that certain income had escaped assessment and issued notice for

reassessment under section 148. The total income reassessed under section 147 was ₹ 45 lakhs.

Considering that none of the additions or disallowances made in the assessment or re-assessment as above

qualifies under section 270A (6), compute the amount of penalty to be levied under section 270A of the

Income-tax Act, 1961 at the time of assessment under section 143(3) and at the time of reassessment

under section 147 (Assume under-reporting of income is not on account of misreporting).

Question 4

The Assessing Officer lodged a complaint against M/s. M & D, a firm, under section 276CC of the Income-tax

Act, 1961 for failure to furnish its return of income for the A.Y.2018-19 within the due date under section

139(1). The tax payable on the assessed income, as reduced by the advance tax paid and tax deducted at

source, was Rs.60,000. The appeal filed by the firm against the order of assessment was allowed by the

Commissioner (Appeals). The Assessing Officer passed an order giving effect to the order of the

Commissioner (Appeals). The tax payable by the firm as per the said order of the Assessing Officer was Rs.

1,000. The Assessing Officer has accepted the order of the Commissioner (Appeals) and has not preferred


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an appeal against it to the Income Tax Appellate Tribunal. The firm desires to know of the maintainability

of the prosecution proceedings in the facts and circumstances of the case. (4 Marks)

Question 5

Explain the circumstances under which the Assessing Officer can resort to provisional attachment of the

property of the assessee. Also, state the period of time for which such attachment can take place. (4 Marks)

Question 6

Mr. Srinivasan was a Central Government pensioner, who expired on 10-5-2019. An amount of ₹ 10 lakhs

in cash was deposited into his savings bank account maintained in a nationalized bank on 28-2-2019,

which was reported by the banker u/s 285BA. A notice was issued by the Assessing Officer to Mrs.

Srinivasan who is his legal representative to file his Return of Income. Mrs. Srinivasan has approached you

as a Tax Consultant as to the course of action to be undertaken by her, since she is unaware of her deceased

husband's financial dealings.

What will be your advice to Mrs. Srinivasan? (4 Marks)

Question 7

Mr. Jayant and Mr. Basant, created, a trust, out of the insurance policy amount received upon the death of

their father. The trust deed named Jayant and Basant as the trustees and Mrs. Kamla and Mrs. Vimla (their

sisters) as the beneficiaries. However, it is the discretion of the trustees that they may either accumulate

the net income of the trust or pay the same to any one or both the beneficiaries. During the previous year

2018-19, the total income of the trust amounted to ₹ 10,50,000.

You are required to discuss the relevant provisions of the Income-tax Act in this regard and calculate the

tax payable by the trust, if any.

What would be your answer if the trust was created under the 'Will' of the deceased father and such trust

is the only trust so created under the 'Will'? (4 Marks)

Question 8

Mr. Akash, an individual, has deposited with Tri Finance & Investment Ltd., a residuary non-banking

company, Rs.15,000 on 10th July, 2016 for 48 months by bearer cheque and made another deposit of

Rs.15,000 on 1st August, 2018 in cash to purchase a new certificate of 48 months tenure.

On 25th March, 2019, Mr. Akash has applied for premature withdrawal against both the certificates. On

27th March, 2019, the company has paid him Rs.16,500, by a bearer cheque, against principal and interest,

due against his first certificate (purchased in 2016) and Rs.15,300 in cash on 28th March, 2019, against the

second certificate.

Discuss the violation of income tax provision, if any, and consequential penalty for each transaction. (4

Marks)

Question 9

In the course of search operation under section 132 of the Income-tax Act, 1961, in the month of July, 2019,

Mr. Khemka has made a declaration under section 132(4) to the Income Tax authorities on the earning of

his income not disclosed in respect of previous year 2018-19. Can that statement save Mr. Khemka from a

levy of penalty, if he is yet to file his return of income for assessment year 2018-19? (3 Marks)


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International Taxation

Question 1

Shine Inc., a Korean company has a subsidiary, Sahara Ltd. in India. Shine Inc. sells ROs (water purifiers) to

Sahara Ltd. for resale in India. Shine Inc. also sells ROs to Rich Ltd., another ROs reseller in India.

It sells 30,000 ROs to Sahara Ltd. at Rs. 22,000 per unit. The price fixed for Rich Ltd. is Rs. 18,000 per unit.

The warranty in case of sale of ROs by Sahara Ltd. is handled by itself. However, for sale of ROs by Rich Ltd.,

Shine Inc. is responsible for the warranty for 6 months. Both Shine Inc. and Sahara Ltd. offer extended

warranty at a standard rate of Rs. 2,500 per annum.

On these facts, examine how the assessment of Sahara Ltd. is going to be affected (6 Marks)

Question 2

Pearl Ltd. is an Indian Company involved in manufacturing and trading in kids garments under the brand

name “CHICOO”. In order to expand its exports sale, it launched a massive publicity campaign in overseas

market. For the purpose of online advertising, it hired the Beauty Inc., a Japanese based company which has

no permanent establishment in India and paid Rs. 12 lakhs for its services in the previous year 2018-19.

Discuss the tax and TDS implications of such transaction both in the hands of Pearl Ltd. and Beauty Inc. (3

Marks)

Question 3

"The term 'Advance ruling' includes within its scope, a determination by the Authority for Advance Rulings

only in relation to a transaction undertaken by a non-resident applicant". Discuss the correctness or

otherwise of this statement, as per the income tax law. (3 Marks)

Question 4

Mr. Berlin Kidman, a foreign hockey player and his brother, Mr. Thomas Kidman, a foreign dancer,

non-residents in India, furnished the following details for the A.Y. 2019-20:

Particulars Berlin Thomas

Income from participation in hockey tournaments in India 45,00,000

Winnings from lotteries (net) 68,200

Contribution of an article relating to the sport of hockey in a sports magazine in India

10,000

Performance in an entertainment shows in India 3,00,000

With reference to the provisions of the Income-tax Act, 1961, you are required to compute their tax

liability for the A.Y.2019-20. (4 Marks)

Question 5

Examine with reasons whether the following transactions attract income-tax in India, in the hands of

recipients under section 9 of Income-tax Act, 1961:

(a) A non-resident Australian company, which did not have a permanent establishment in India, entered

into an agreement for execution of electrical work in India. Separate payments were made towards

drawings & designs, which were described as "Engineering Fee". The assessee contended that such

business profits should be taxable in Australia as there is no business connection within the meaning of

section 9(1)(i) of the Income-tax Act, 1961.


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(b) A firm of solicitors in Delhi engaged a barrister in Canada for arguing a case before Supreme Court of

India. A payment of 5000 Canadian Dollars was made as per terms of professional engagement.

(c) Dream Engineering, a non-resident foreign company entered into a collaboration agreement on

25/6/2018, with an Indian Company and was in receipt of interest on 8% debentures for Rs. 20 lakhs,

issued by Indian Company, in consideration of providing technical know-how during previous year 2018-

19. (6 Marks)

Question 6

Mr. Bhuwan is a non-resident. The appeal pertaining to the assessment year 2014-15 is pending before the

Income-tax Appellate Tribunal, the issue involved being computation of export profit and tax thereon. The

same issue persists for the assessment year 2015-16 as well.

Mr. Bhuwan’s brother Mr. Karan has obtained an advance ruling under Chapter XIX - B of Income-tax Act,

1961 from the Authority for Advance Rulings on an identical issue. Mr. Bhuwan proposes to use the said

ruling for his assessment pertaining to the assessment year 2014-15. Can he do so? (3 Marks)

Question 7

The net result of the business carried on by a branch of foreign company in India for the year ended

31.03.2019 was a loss of Rs. 100 lakhs after charge of head office expenses of Rs. 200 lakhs allocated to the

branch. Explain with reasons the income to be declared by the branch in its return for the assessment year

2019-20. (3 Marks)

Question 8

Examine the following transactions and discuss whether the transfer price declared by the following

assessees, who have exercised a valid option for application of safe harbour rules, can be accepted by the

Income-tax Authorities –

Assessee

International transaction

Aggregate value/value of transactions entered into in the P.Y.2018-19

Declared Operating Profit

Margin

Operating Expense

1 B Ltd., an

Indian company

Provision of data processing services

with the use of information technology

to Y Inc., its foreign subsidiary.

Rs. 180 crore Rs. 30 crore Rs. 150 crore

2 D Ltd., an

Indian company

Provision of contract R & D services relating to generic pharmaceutical

drug, to ABC Inc., a foreign company which guarantees 15% of the total borrowings of D

Ltd.

Rs. 50 crore Rs. 9 crore Rs. 30 crore

(6 Marks)

Question 9

“JUPITER” is a shipliner, used in carrying passengers and cargo, owned by M/s Saturn of U.K. The ship

carried the passengers and cargo in June, 2018 from Singapore to Chennai and vice versa and collected

charges thereof amounting to Rs. 200 lacs. It left Chennai port on 15.6.2018 for its journey to Korea. No


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other journey to India was undertaken by any of the vessels of the company during the year ended on

31.3.2019. The non-resident company had authorized its Indian agent to comply with the income tax

provisions.

You are consulted by the company to explain about the procedure as to return of income to be filed and the

period within which the assessment thereof will be completed by the Assessing Officer. (4 Marks)

Question 10

The following are the particulars of income earned by Miss Anuradha, a resident Indian aged 25, for the

A.Y. 2019-20:

Particulars ₹ in Lacs

Income from playing hockey matches in country A 15.00

Tax paid in country A 3.00

Income from playing hockey matches in India 23.00

Deposit in PPF 1.50

Medical Insurance Premium paid for her mother (non resident) aged 75 years (paid through credit card), who is not dependent on her

0.40

Compute her total income and tax liability for the A.Y.2019-20. There is no Double Taxation Avoidance

Agreement between India and country A. (6 Marks)

Question 11

Mr. Vallish, a non-resident, made an application to the Authority for Advance Rulings on 9.9.2018 in

relation to a transaction proposed to be undertaken by him. On 1.11.2018, he decides to withdraw the said

application. Can he withdraw the application on 1.11.2018? Examine. (3 Marks)

Question 12

1. Xylo Inc., a US company, received income by way of fees for technical services of ₹ 2 crore from

Alpha Ltd., an Indian company, in pursuance of an agreement between Alpha Ltd. and Xylo Inc.

entered into in the year 2012, which is approved by the Central Government. Expenses incurred for

earning such income is ₹ 8 lakhs. Examine the taxability of the above sum in the hands of Xylo Inc as

per the provisions of the Income-tax Act, 1961 and the requirement, if any, to file return of income,

assuming that Xylo Inc does not have a permanent establishment in India

2. If Xylo Inc. has a permanent establishment in India and the contract/agreement with Alpha Ltd. for

rendering technical services is effectively connected with such PE in India, examine the taxability

based on the following details provided

Particulars Amount

1 Fees for technical services received from Alpha Ltd. 2 Crore

2 Expenses incurred for earning such income 8 Lakhs

3 Fees for technical services received from other Indian companies in pursuance of approved agreement entered into between the years 2005 to 2010

4 Crore

4 Expenses incurred for earning such income 15 Lakhs

5 Expenditure not wholly and exclusively incurred for the business of such PE [not included in (2) & (4) above]

6 Lakhs

6 Amounts paid by the PE to Head Office (not being in the nature of reimbursement of actual expenses)

12 Lakhs


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Question 13

1) Research & Co. is engaged in providing scientific research services to several non-resident clients.

Such services are also provide

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